FRANKFURT (MNI) – The publication of stress test results for the
EU’s biggest banks is a worthwhile endeavor, but may not go far enough,
European Central Bank Governing Council member Yves Mersch said in an
interview published Monday.

The purchase of government bonds by the ECB does not run counter
its monetary policy, the central banker told the Luxembourg newspaper
Wort. Still, non-standard measures must end when their objectives have
been met, the head of Central Bank of Luxembourg added.

There is no need for a EU new treaty, since the fiscal Stability
and Growth Pact can be improved, he said.

“I support the publication of the information” on stress tests in
the EU, Mersch underlined. “However it is questionable whether the
examination of the 25 to 30 biggest banks in the EU…is enough to get a
clear picture,” he added.

Contrary to the ECB’s earlier decision to purchase covered bonds,
its current purchases of government bonds are “neutral” with regard to
liquidity, Mersch reminded.

“The purchase of government bonds does not stand in opposition to
monetary policy,” he argued.

With all extraordinary measures there is the risk that they could
lead into structural difficulties, he said. “Thus, these are measures
that are only used in emergencies. They must be withdrawn when their
purpose is fulfilled,” he underscored. “The same is also true for the
purchase of government bonds.”

Speaking about EU’s limits on government deficit limits, Mersch
said he was “not of the opinion that we need to ratify a new treaty.”
Rather, “the Stability and Growth Pact must be applied and can indeed
still be expanded. Sanctions would need to be made automatic. There can
no longer be excuses.”

Asked about exchange rate fluctuations between the euro and the
dollar, Mersch said they “do not match the fundamental data.”

He also said that rating agencies are the “biggest hurdle” to a
less pro-cyclical financial system, but he cautioned that the ECB cannot
simply take over the jobs of such agencies.

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

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